2021 BUDGET UPDATE
Last night Treasurer Josh Frydenberg delivered the 2021 budget speech in Federal Parliament. As expected, the purse strings have been loosened and there are some significant changes that our clients will be interested in, most notably in the areas of small business, personal income tax and superannuation. As always it is important to remember that these measures are proposals and could be varied or abandoned before becoming law. Further information on these and other measures is available in the form of fact sheets on the government’s budget website, at https://budget.gov.au/2020-21/content/factsheets/index.htm.
Small Business – Businesses will continue to be able to write off the full cost of new assets, regardless of their cost, up to 30 June 2023. Companies that incur a loss in the 2019/2020 to 2022/2023 income years may be eligible to carry back that loss to offset previously taxed profits as far back as 2018/2019. This measure is first able to be applied on the 2020/2021 tax return, and we will discuss this with relevant clients when preparing 2020/2021 tax returns.
Workers – The Low and Middle Income Tax Offset (LMITO), which was previously extended to apply to the current income tax year, will be extended again to 2021/2022. This offset decreases the tax payable by up to $1,080 for individuals earning between $48,001 and $90,000. The government also intends to simplify tax residency rules which have become increasingly complicated and contested over the last few years. The primary test to determine tax residency will be based on an individual’s physical presence in Australia for 183 days or more in any income year, with secondary tests to be applied that are yet to be fully outlined.
Retirees – From 1 July 2022 the removal of the work test for individuals aged 67 to 74 will create opportunities for those individuals to contribute more to super, perhaps when they have received an inheritance, or as part of a recontribution strategy. The minimum age at which individuals can make a downsizer contribution of up to $300,000 will also be lowered from 65 to 60.
Workers – There have been no changes to the previously outlined Super Guarantee increase, with the minimum amount payable by employers to increase to 12% by 1 July 2025.
|PERIOD||SUPER GUARANTEE RATE|
|1 July 2021 – 30 June 2022||10.00%|
|1 July 2022 – 30 June 2023||10.50%|
|1 July 2023 – 30 June 2024||11.00%|
|1 July 2024 – 30 June 2025||11.50%|
|1 July 2025 onwards||12.00%|
Also expected to be effective from 1 July 2022 is the removal of the $450 per month threshold for Superannuation Guarantee eligibility, meaning that employees will be eligible for SG from the first dollar earned.
It is extremely important for businesses to prepare for these two changes and the impact that it will have on budgeting and cash flow. It is also important to remember that these changes apply equally to unrelated employees and business owners who pay themselves a wage through their company or trust.
Self Managed Super Funds – Residency requirements for SMSFs will be relaxed, allowing trustees to be overseas for up to 5 years without impacting the complying status of the SMSF. Overseas members will also not be limited in their ability to make contributions to their SMSF. These changes are expected to apply from 1 July 2022.